Gemcove Asset Pty Ltd v Sirote Pty Ltd [2000] FCA 619

FEDERAL COURT OF AUSTRALIA

Gemcove Asset Pty Ltd v Sirote Pty Ltd [2000] FCA 619

GEMCOVE ASSET PTY LTD v SIROTE PTY LTD, STEPHEN GOEREE, KATHLEEN GOEREE and EXCLUSIVE 4 X 4

WG 16 of 1999

CARR J

10 FEBRUARY 2000

PERTH

IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY WG 16 OF 1999

BETWEEN: GEMCOVE ASSET PTY LTD

as Trustee for the Wall Family Trust

Applicant

AND: SIROTE PTY LTD (ACN 009 409 036)

First Respondent

STEPHEN GOEREE, KATHLEEN GOEREE

Second Respondent

EXCLUSIVE 4 X 4

Third Respondent

JUDGE: CARR J

DATE: 10 FEBRUARY 2000

PLACE: PERTH

REASONS FOR JUDGMENT

Introduction 1 The Court has before it a motion on notice by which the respondents seek an order that these proceedings be transferred to the District Court of Western Australia at Perth, pursuant to s 5(4) of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cth). The applicant opposes the motion.

Factual and Procedural Background 2 The following summary of the factual background is taken variously from allegations made in the statement of claim and affidavits which have been filed by the parties. Nothing in this recitation of facts should, of course, be taken as in any way amounting to a finding of fact for the purposes of the proceedings. 3 On 4 June 1998 the applicant (which I shall refer to as "Gemcove") and the first respondent (which I shall refer to as "Sirote") entered into a written agreement, ("the Contract") whereby Sirote agreed to sell and Gemcove agreed to buy the goodwill, plant, equipment and stock-in-trade of a business carried on under the name "S & G Gearbox Exchange" (the Business) at Welshpool, a suburb of Perth. The purchase price for the Business was $238,000, allocated in the contract as to $130,000 for stock-in-trade, $40,000 for fixtures and other plant and $58,000 for goodwill. I appreciate that the applicant considers that the allocation of values is not strictly accurate. For example, the applicant suggests that the value of stock is higher than the actual value, but that there was an adjustment to take into account the fact that the applicant had assumed responsibility for future long service leave entitlements and the like. However, I treat the total purchase price and the allocation of $58,000 for goodwill as broadly indicating the dimensions of the transaction. 4 The contract contained a restrictive covenant on Sirote's part not to engage or be interested in any business of the nature of the Business within a radius of 150 kms from the premises at which the Business had been conducted by it ("the Premises") for a period of five years from the date of the Contract. There was also a clause that Sirote would not during that period engage in conduct derogating from Gemcove's right to obtain the full benefit of the goodwill of the Business. In accordance with another clause in the Contract the second respondents (whom I shall call Mr and Mrs Goeree) entered into a deed ("the Deed") with the applicant whereby they covenanted in similar terms to the restrictive covenant entered into by Sirote. Mr and Mrs Goeree are directors of Sirote and had conducted the Business on its behalf. 5 There was another relevant term in the contract. That was to the effect that Mr Goeree would, without remuneration, assist the applicant to familiarise itself with the nature and general running of the Business for a period of eight weeks from completion. 6 Completion was effected on 17 July 1998 and the applicant commenced operating the Business on 20 July 1998. 7 I should say something about the third respondent. The third respondent is a firm registered under the provisions of the Business Names Act 1962 (WA). A business names extract is in evidence which shows that Sirote successfully applied for registration of that business name on 23 June 1998 and commenced its business (automotive repairs and dismantling) on 18 July 1998. 8 On 19 February 1999 the applicant initiated these proceedings. 9 In its application the applicant claimed against each of the respondents damages under s 82 of the Trade Practices Act 1974 (Cth) ("the Act"), interest pursuant to s 51A of the Federal Court of Australia Act 1977 (Cth) and further or other relief under s 87 of the Act. 10 I have been informed that the parties attempted to resolve their disputes by mediation, but that those attempts proved unsuccessful. 11 On 28 September 1999 the applicant filed its statement of claim. 12 In summary, that statement of claim pleaded the facts to which I have just referred and then pleaded breach by the respondents respectively of the terms of the Contract and the Deed. In essence the applicant alleged that, aided and abetted by Mr and Mrs Goeree, Sirote had set up in a business which competed with the applicant's business within a few kilometres of the premises, that is, that those parties had breached their obligations under the Contract and the Deed respectively. 13 The applicant then pleaded three representations said to have been made by Mr Goeree on behalf of Sirote. They were that: · Mr and Mrs Goeree were agreeable to covenanting in the terms of the restrictive covenant contained in the contract; · Mr and Mrs Goeree intended occasionally to purchase 4-wheel drive motor vehicles, refurbish and sell such vehicles; and · Sirote was selling the Business because Mr Goeree was suffering from a chronic disease whereby he had been increasingly absent from it. 14 The applicant pleaded that those express representations constituted implied representations to the effect that Mr and Mrs Goeree would abide by their covenant, that Mr Goeree's chronic disease was such that he would be unable to conduct any business similar to the Business after completion of the Contract and that the proposed purchase and refurbishment of 4-wheel drive vehicles would be so conducted as not to constitute a breach of the covenants given by Sirote and Mr and Mrs Goeree. 15 The applicant further pleaded reliance on the representations inducing it to enter into the contract and effect completion. The applicant pleaded that the representations were made in the course of trade and commerce and were "false and untrue and misleading and deceptive" because at all times the respondents intended to act contrary to the representations, and intended to carry on a business similar to the Business within a radius of 150 kms and furthermore, Mr Goeree was not suffering from any disease of such a nature as would preclude his being actively involved in the conduct of a Business similar to the Business. 16 Finally the applicant pleaded that by reason of the misleading and deceptive conduct of the respondents it had suffered loss and damage. 17 The relief claimed in its statement of claim (in the order in which it was claimed) was: 1. Damages for breach of the Contract and the Deed; 2. An account by the respondents of profits derived by reason of such breaches; 3. Interest upon such damages or other monies found payable to it; 4. An injunction restraining the respondents from continuing to act in breach of the Contract and the Deed; 5. An order that Sirote deliver all records relating to outstanding warranty claims as at completion; and 6. Costs. 18 On 29 October 1999, the respondents filed this motion. 19 When the motion first came before me on 16 November 1999 Mr P T Arns, counsel for the respondents explained that the rationale for his clients seeking an order for the proceedings to be transferred to the District Court was that the applicant's cause of action was based fundamentally in contract, that it concerned the scope and the terminology of a restraint of trade and that the Trade Practices Act claim was pleaded almost in the alternative. Mr Arns said that the implied representations relied upon by the applicant were to the effect that the respondents would abide by the terms of the restraint that had been negotiated. 20 Mr Arns further submitted that the claim should have been brought in the District Court. He said that "on any stretch of the imagination", the claim was not going to exceed $100,000 in damages. This was not a reference to the limit of the District Court's jurisdiction ($250,000) but to the costs sanctions provided for in Order 62 rule 36A of the Rules of the Federal Court. In summary, the proceedings involved, so it was put, a standard contractual claim for a fairly small amount which the District Court was eminently suited to deal with. 21 Mr A Metaxas who, on that occasion, appeared for the applicant argued that his client was unable to estimate the damages which it was claiming because it had not had discovery of documents and submitted that the respondents' motion should be stood over until the applicant had given discovery. 22 When I asked whether the applicant had made any quantification of its damages, Mr Metaxas replied that the applicant was unable to do so. Mr Arns, in reply referred to evidence on affidavit which showed that the Business had made a net profit of only $63,000 during the year ended 30 June 1997 and had made a loss of $10,000 in the previous year. He contended that it would be very difficult, on any calculation, to achieve a damages figure in excess of $250,000. 23 I decided to make an order for limited discovery confined to the question of quantum of damages. The orders were in these terms: "1. Each party shall within 21 days give to the other discovery and inspection of their respective documents (being the documents referred to in the next sentence) directly relevant to the amount of any monetary judgment sought by the applicant. The intention of this order is that initially such discovery shall be confined to those documents (not being, at this stage, originating documents) as disclose: (a) in the case of the applicant its receipts since 18 July 1998 in conducting the business referred to in paragraph 3 of the statement of claim; (b) in the case of the respondents their receipts since 18 July 1998 in conducting the business referred to in paragraph 7.1 of the statement of claim. The matter of any further discovery is to be adjourned to a date to be fixed. 2. Within 14 days of compliance with paragraph 1 above, the applicant shall file and serve a document setting out its best reasonable estimate of the monetary judgment it seeks." 24 The respondents and the applicant filed their list of discoverable documents on 8 and 16 December 1999 respectively. 25 The applicant has not filed a document setting out its best reasonable estimate of the monetary judgment which it seeks. 26 Instead, on 16 December 1999, it filed two motions. The first was a motion seeking relief against the respondents and their solicitor for alleged breach of undertakings of confidentiality in the mediation proceedings and alleged contempt of court by including in Mr Goeree's affidavit in support of the transfer motion material which was said to be privileged and should not have been so included. In its second motion the applicant sought three substantive orders. The first was an order that the respondents and their solicitors provide an undertaking regarding the use and inspection of the documents discovered by the applicant pursuant to the orders made on 16 November 1999. The second and third orders were for discovery of all documentation relating to the conduct of the Business for the tax years ended 30 June 1994, 1995, 1996, 1997 and to 18 July 1998. Further, the applicant sought discovery of all invoices relating to purchases made "by the third respondent". 27 At the hearing on 16 November 1999 I had stressed to the parties this Court's general policy of not granting discovery on an extensive basis. I note the extreme width of the discovery sought in the applicant's second motion filed on 16 December 1999. The person who drafted that motion appears to have made no effort to confine the width of the discovery sought. 28 The matter came before me again on 23 December 1999. Mr R J Lashansky appeared as counsel for the applicant on that occasion. When I asked Mr Lashansky whether he had had inspection of the applicant's discovered documents, he told me that he had not asked for inspection because the respondents' discovery was inadequate. 29 It then emerged, for the first time, that the applicant was intending to seek relief under s 87 of the Act by way of having the Contract set aside and the Business revested in Sirote. After some discussion about the prospects of reaching agreement on confidentiality undertakings, the three motions were adjourned to today. Directions were made to the effect that if the applicant proposed to amend its application or statement of claim it was to file and serve a minute of proposed application or amended statement of claim no later than 21 January 2000. 30 On 27 January 2000 the applicant filed an affidavit in support of its application to amend the statement of claim to which was annexed a minute of the proposed amendment. 31 That minute is in fact a completely re-cast statement of claim. The respondents say that the proposed statement of claim does not disclose a cause of action and in almost every other respect is deficient. Accordingly so they submit, leave should not be granted to amend the statement of claim into a form in which it ought to be struck out. I shall not deal with those contentions at this stage. Rather I shall describe how the applicant proposes to recast the statement of claim. For the time being I shall refer to that document as if in its re-cast form it were a pleading. The document has been re-cast to plead a series of alleged misrepresentations, described as the first, second, third and fourth misrepresentation. In the document the applicant pleads that the making of those misrepresentations constituted misleading and deceptive conduct in contravention of s 52 of the Act whereby it has suffered loss and damage. 32 The proposed statement of claim, unlike the current statement of claim, does not plead breach of the Contract or the Deed by Sirote and Mr and Mrs Goeree respectively. The relief claimed against Sirote is an order under s 87 of the Act "rescinding" the contract, damages under s 82 of the Act, interest under s 51A of the Federal Court of Australia Act, further or other (unspecified) relief under s 87 of the Act and costs. As against Mr and Mrs Goeree, the applicant seeks damages under both s 82 of the Act and s 10 of the Fair Trading Act 1987 (WA), interest and costs. 33 I turn to the question whether the matter in these proceedings or the proceeding itself (there is of course a difference) should be transferred to the District Court. The respondents submit that the District Court is the most appropriate court in which to adjudicate this matter, bearing in mind the considerations referred to in s 5(4) of the Jurisdiction of Courts (Cross-Vesting) Act. In particular, so they submit, the statement of claim and the proposed substituted statement of claim disclose that the cause of action primarily relied upon is grounded in contract. The respondents say that the applicant has consistently failed to disclose the approximate quantum of damages claimed, but has conceded that the Business since handover has achieved results similar to those achieved by the respondents. They further submit that the District Court has power to grant all the remedies which the applicant seeks. 34 Counsel for the applicant submitted, in his written submissions, that the transfer of these proceedings was "uncalled for and unjustified". The applicant submitted that it had the choice of forum and there were no sound reasons "for the applicant's choice of forum to be dispensed with". 35 The applicant relied upon the fact that the pleas in the proposed amended statement of claim were based upon contraventions of the Act and not common law breach of contract. 36 The applicant also argued that proceeding in this Court conferred legitimate benefits upon it. Those included: · Judge-management directions hearings; · expedited trial dates; · the application of the Commonwealth Evidence Act rather than what was described as "the more restrictive State Evidence Law"; and · what was said to be the familiarity of the judicial personnel of the Federal Court with the provisions of the Act. 37 Next the applicant submitted that it had invested $238,000 and assumed liability for long service leave entitlements and sought the return of those monies by way of restitution. 38 The applicant submitted that the matter was of "great importance" to its directors who had mortgaged their family home to fund the purchase of the Business. 39 The applicant contended that the "too ready grant" of applications for transfer would frustrate the object of the Act, namely the provision of consumer protection. 40 Finally the applicant submitted that relief under the Act was a "creature of statute and not equity" and the ability of the District Court to grant equitable remedies was, so it was put, irrelevant.